Is the Sky Falling or Are We Entering a Golden Age?

The news headlines are grim.  Oil spills, sovereign defaults, choppy stock markets. tepid employment.  It's no wonder that the global capital markets seem spooked.

Yet, here's the strange thing, many of us in the technology sector have never been more bullish about what lies ahead.

It's like a tale of two cities.  Wall Street and the City of London are hand-wringing and doom-saying while Silicon Valley, Cambridge and Silicon Alley have never been rosier.  I attended my 15th Harvard Business School reunion last weekend and the contrast was striking.  On the one hand, capital markets professor Andre Perold was pointing to the jump in volatility as sign of the fear in the markets and bemoaning the fact that $60 trillion of global wealth had been wiped out since the peak.  On the other hand, my classmate Sheryl Sandberg (COO Facebook) was claiming that the Valley has never been crazier and, "Everyone I know is getting funded."

I was asked to give a presentation today at the Association for Corporate Growth (ACG), a group of 600 or so bankers and deal makers across a wide range of industries.  I think they asked me to speak because of my book, but I decided to focus instead on this question of whether the world is coming to an end, or whether there is reason for optimism in the long-run.  After wallowing in the data for the last few weeks, I've come down firmly on the side of optimism (no surprise?).  There are just too many positive secular trends that suggest the developments in wireless technology, human genome mapping, synthetic biology, energy technology and globalization won't continue to have an enormously positive impact on our planet in the decade ahead.

In fact, I would argue that the next decade will see an acceleration of innovation as compared to the previous decade, which itself has been dizzying.  I think we are entering a Golden Age of technology and innovation, despite the short-term economic clouds.  I end the presentation with a local view – that Massachusetts and the Innovation Economy is very well-positioned to take advantage of the opportunities ahead.  I would argue the same case could easily be made for New York City and Silicon Valley and perhaps other innovation centers as well.

Here is the presentation with the data to support this thesis.  Special thanks to my colleague Robin Lockwood for helping me put this together.  I'd love to hear your thoughts (view this video first, which I used to tee it up):

Golden age for technology and innovation http://static.slidesharecdn.com/swf/ssplayer2.swf?doc=goldenagefortechnologyandinnovationvfinalacg-100610085454-phpapp01&stripped_title=golden-age-for-technology-and-innovation-vfinal-acg

View more presentations from Jeffrey Bussgang.

7 thoughts on “Is the Sky Falling or Are We Entering a Golden Age?

  1. Hi Jeff,
    BTW, enjoyed Bill Sahlman’s one word definition of VC industry at AlwaysOn Venture Summit 🙂
    The answer is “YES” to both questions.
    Yes, the sky is falling for those who cannot take advantage of this golden age for whatever reason: education, skills, etc.
    Those, on the other hand who are: 1)inventors, 2)innovators/entrepreneurs, 3)investors, 4)professionals trained to work in these innovative companies and 5)service providers who stay close to innovation and sources of private capital,they will do well.
    The speed of innovation in this age is such that those who don’t stay with it will be left behind. Those folks have obsolete skills and knowledge that may not be all that useful in new industries.
    So, what you are bound to see is the growing disparity in income levels over time.
    Here is another thing to think about. Over the last decade or so, leading endowments have significantly reduced their holding in US public stock market and increased their holdings in VC/PE and other illiquid asset classes despite the LP/GP tensions. It tells me that:
    1)they are less confident in US public stock market
    2)they are more interested in innovation focused private capital partnerships, b/c that’s where the value has historically come from
    3)they expect inflation
    Most of the US public on the other hand is invested in US public stocks and does not have the option to invest in private equity.
    So, is sky falling for some people? yes
    Golden age for some? yes

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  2. TypePad HTML Email
    Great points, Neil. I agree with you about
    the trends not necessarily being good investments.  Jury is definitely
    still out on the human genome project, but fast forward 10 years and it’s
    hard to imagine the breakthroughs not translating into therapies.
     

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  3. Thanks for posting the presentation. Very interesting.
    I miss Jim Cash. He’s a great guy.
    The big question I see from your presentation (and Sheryl’s comment) is what is the investment return on these business activities and investments? Just because Sheryl says “Everyone I know is getting funded” doesn’t mean that it makes economic sense for everyone to get funded. How different is it from someone saying 4 years ago “Everyone I know is buying a house” or “Every home builder I know is selling out all their houses”?
    It brings to mind the old adage “How do you become a millionaire? Start with a billion dollars [and lose money].”
    You mention the human genome, but the mapping of the human genome has provided a lousy societal return and return for most VC’s (handful of winners, but like all investing everyone ignores the many more losers). Even the NY Times picked up on this, but they were very late in covering this (it’s been known and talked about in medical circles for the past 3-4 years). http://www.nytimes.com/2010/06/13/health/research/13genome.html?scp=1&sq=genome&st=cse The health outcome and return on investment for society would have been a lot better had the money invested in the human genome mapping project been spent on early childhood education, education for young mothers (education of the mother, even in 2 parent homes, is a primary determinant of childhood health and educational achievement).
    You mention energy technology. But most energy venture capital is not funding real businesses that have compelling business models on their own. It is funding business models that are highly dependent on government regulation that are not necessarily sensible or good for society, and often dubious (or even false) claims that the products will be net positives for the environment.
    Consider the way VC’s a few years ago were falling over themselves to fund ethanol plants. The talk was all about how great these plants were for society and what great businesses they were. None of these VC’s wanted to admit that the only reason these ethanol deals made any sense was due to weird government regulations that were probably bad for the environment and economy. In the end most of the equity capital invested in ethanol plants was destroyed and claims of job creation are a joke because there are much better ways to create jobs than to waste investment capital to do it. How do you become a millionaire? Start with a billion dollars. How do you create a lot of jobs? If you raise a lot of capital you can spend it on salaries before your company runs out of funds and goes bankrupt.
    It isn’t clear that any solar VC deals would be good without heavily lobbied for tax incentives and heavily lobbied for regulations meant to favor solar. Is the cost really worth it? Solar advocates claim that solar reduces carbon footprint, yet solar construction creates large amounts of carbon at a very high cost per unit of power generation capacity.
    Is there something inherently great and different about social media from what came before? That isn’t apparent at all. Your chart shows that social media is or should be just another advertising delivery mechanism (slide about usage and advertising in various media formats). A few years ago, MySpace was huge. Some years before that, AOL had huge membership, bulleting board and social communities. The Sopranos, Heroes, Desperate Housewives, Who Wants to be a Millionaire? and other shows have function as effective advertising delivery vehicles that get used by viewers for social connectivity (“Did you see Heroes last night?”.
    There’s a flood of money going to social media and mobility apps. People can spend their leisure time and savings how they want in a free society, but there isn’t a foundation for strong economic growth built by VC’s funding a social media site that creates a few jobs, burns capital and then gets sold for “an undisclosed sum” (which means that the VC’s lost money) to a large competitor.
    I’m not a gloom and doomer about the world. There’s a lot of future growth for the world in bringing modern living (transport infrastructure such as roads, cars, trains, airplanes and airports; computers; medical technology; etc.) equipment to the emerging markets like China, Brazil and India.

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  4. I was also at HBS last weekend (though the Partner of a 10-year reunion attendee), and I agree with you. For technology sectors in general, especially those like HCIT and security, the opportunity and innovation are there for the taking. Primary difference between last decade and this – business models based on real value and not solely ad revenue. Exciting times.

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